Capital Gains Tax on Selling Inherited Real Property: Which Zonal Value Applies?

When an heir sells real property they inherited, the 6% capital gains tax is computed on the property’s gross selling price or its current fair market value at the time of the sale — whichever is higher — not on the value used years earlier to compute estate tax. Estate tax and capital gains tax (CGT) are separate taxes on separate transfers: estate tax taxed the decedent-to-heir transfer at death, and CGT now taxes the heir-to-buyer sale, using whatever BIR zonal value schedule is current on the sale date.

Why doesn’t the estate-tax zonal value carry over to the sale? #

Estate tax and capital gains tax are computed at two different points in time, each using the fair market value that applies on that specific date — the estate-tax valuation from the decedent’s date of death has no legal role in a later sale. Under Section 84 of the National Internal Revenue Code (NIRC), estate tax is assessed on the net estate’s value “as determined in accordance with Sections 85 and 86,” valued as of the date of death. Capital gains tax is a completely different tax, imposed under a different NIRC section, on a different transaction, computed on values as of a different date. Nothing in the Tax Code links the two valuations together.

What does NIRC Section 24(D)(1) actually require? #

NIRC Section 24(D)(1) imposes a flat 6% final tax on the sale of real property classified as a capital asset, based on whichever is higher between the gross selling price and the current fair market value at the time of sale — a rule that, by its own wording, is anchored to the sale, not to any earlier transaction. The provision reads, in full:

“A final tax of six percent (6%) is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, … by individuals, including estates and trusts, based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher.”

— Section 24(D)(1), National Internal Revenue Code, as amended by the TRAIN Law (Republic Act No. 10963)

The phrase “current fair market value” is doing the work here. It points to the fair market value in force when the sale happens — computed under NIRC Section 6(E), which authorizes the BIR Commissioner to divide the country into zones and prescribe a zonal value for each — not to a fair market value frozen at some earlier date. An heir who sells five, ten, or twenty years after inheriting a property applies the zonal value schedule published for that RDO on the actual sale date.

Is the inherited property even a capital asset for the heir? #

Whether the 6% capital gains tax applies at all depends on how the property is classified in the seller’s hands, and Revenue Regulations (RR) No. 7-2003 supplies the test: real property not used in the seller’s trade or business is a capital asset, while property used in a business — including a habitual real estate business — is an ordinary asset taxed differently. For most heirs selling a family home or an inherited residential lot they never used commercially, the property remains a capital asset, and BIR Form 1706 with the 6% final tax applies. If instead the heir (or the estate) is engaged in the real estate business, or converts the inherited lot into a rental or development project, RR No. 7-2003’s ordinary-asset rules can instead route the sale through regular income tax and creditable withholding tax. This classification question is worth checking before assuming the 6% flat rate automatically applies.

Does selling later mean paying more capital gains tax? #

Because BIR zonal values are revised periodically and property markets generally rise over time, a heir who sells years after inheriting typically faces a higher tax base — and therefore more capital gains tax — than if the same sale had happened right after the estate was settled. This is not a penalty for waiting; it is simply the mechanical effect of NIRC Section 24(D)(1) always looking at the sale-date value. There is no rule that credits or discounts the CGT base for the estate tax already paid on a lower, earlier valuation — the two computations do not interact.

Worked example: 2020 inheritance, 2026 sale #

A property inherited in 2020 and sold in 2026 illustrates the gap between the estate-tax valuation and the capital-gains-tax valuation directly — the estate used the 2020 zonal value, but the sale six years later must use whatever zonal value the BIR has published for that RDO in 2026.

An heir inherits a residential lot in Batangas from a parent who died in 2020. At that time, the BIR zonal value for the lot’s street was ₱2,000 per square meter, and the lot measures 500 square meters. The estate paid its 6% estate tax (under BIR Form 1801) using that valuation as part of the gross estate. The heir completes estate settlement, obtains the eCAR, and transfers the title into their own name.

In 2026, the heir decides to sell the same lot to a buyer for ₱4,000,000. By then, the BIR zonal value for that RDO has risen to ₱6,000 per square meter for the same street classification.

The heir’s 2026 capital gains tax due is 6% × ₱4,000,000 = ₱240,000, filed on BIR Form 1706 within 30 days of the notarized deed of sale. Notice that the 2020 estate-tax zonal value of ₱1,000,000 never enters this computation at all — it only mattered for the estate’s own BIR Form 1801 six years earlier. If the 2026 zonal value of ₱3,000,000 had instead exceeded the ₱4,000,000 selling price, the higher zonal value would have been the tax base under NIRC Section 24(D)(1) — the selling price only controls when it is the larger of the two.

Does this create double taxation on the same property? #

No — estate tax and capital gains tax are not double taxation on the same event, because they tax two legally distinct transfers separated by an act of the heir’s own choosing (the decision to sell). Estate tax under NIRC Section 84 taxed the involuntary transfer from the decedent to the heirs by succession. Capital gains tax under NIRC Section 24(D)(1) later taxes the heir’s own voluntary sale to a third-party buyer. Philippine tax law treats these as two separate taxable transactions with two separate tax bases, and both liabilities can arise from the same physical piece of land without either one offsetting or crediting the other.

Frequently asked questions #

Does an heir pay capital gains tax on top of estate tax when selling inherited property? #

Yes. Estate tax and capital gains tax are two separate taxes on two separate events, not double taxation on the same event. Estate tax under NIRC Section 84 taxes the transfer of property from the decedent to the heirs at death. Capital gains tax under NIRC Section 24(D)(1) taxes the later transfer from the heir to a buyer when the heir sells. Both are owed if both events happen.

Which BIR zonal value applies when an heir sells inherited real property? #

The BIR zonal value in effect at the time of the sale applies, not the zonal value used years earlier to compute estate tax on the decedent’s death. Capital gains tax under NIRC Section 24(D)(1) is computed on the gross selling price or the current fair market value at the time of the sale, whichever is higher, so the schedule the BIR publishes on the sale date is the one that controls.

Is there a step-up in basis for inherited property in the Philippines? #

No. Philippine capital gains tax on real property is not a gain-based tax, so there is no cost basis to step up in the first place. The 6% rate applies to the gross selling price or current fair market value, whichever is higher, regardless of what the decedent originally paid for the property or what value was used for estate tax.

What form does an heir file to pay capital gains tax on an inherited property sale? #

An heir who sells inherited real property classified as a capital asset files BIR Form 1706, the Capital Gains Tax Return, and pays the 6% tax within 30 days of the notarized deed of sale. This is separate from BIR Form 1801, the Estate Tax Return, which the estate already filed and paid when the property was transferred to the heirs.

Summary #

Selling inherited real property is a separate taxable event from the estate settlement that transferred it, and NIRC Section 24(D)(1) computes the 6% capital gains tax on the gross selling price or the current fair market value at the time of the sale — whichever is higher — using whatever BIR zonal value schedule applies on that sale date, not the value from years earlier when estate tax was paid. There is no step-up basis and no offset between the two taxes; they simply apply in sequence as the property changes hands twice. Before listing an inherited property, check the current published zonal value for the property’s RDO (see What Is BIR Zonal Value?) and, if the estate tax computation itself needs a refresher, see How to Compute Philippine Estate Tax: A Step-by-Step Worked Example.